The Mail on Sunday

Fund looks to the Continent for its long-term growth

- By Sally Hamilton

A FUND that invests in European companies – but excludes those listed in the UK – has some resonance in the current political climate, especially as the ‘B word’ has frightened off serious numbers of investors from touching the British stock market in recent months.

According to figures from fund analyst Morningsta­r, investors pulled £1.3 billion out of UK equity funds in July as uncertaint­y gripped the region.

But economic troubles are not just a problem for Britain. Recession fears are rippling throughout the Continent. While this might be a concern for some fund managers, Tim Crockford, who runs the fund Hermes European ex UK, hopes his strategy of rooting out quality companies with longterm growth potential across mainland Europe will help steer the fund through the worst.

Crockford says: ‘It is a horrible time to be allocating assets [deciding which type of asset to invest in] and I am very grateful to be a stock picker. There are always exciting stocks to invest in. We are focused on the longer term horizon.’

Crockford looks for companies where a structural change within the organisati­on, or its market, or a key product looks likely to spur future growth. The result is an eclectic mix of companies in the £275 million fund, ranging from a microchip manufactur­er and sports goods maker to pharmaceut­icals outsourcin­g service.

A strong contributo­r recently has been Adidas. Purchased in 2009, the sportswear giant’s shares performed well at first. But by 2014 its share price was having ‘a torrid time, dropping in half from peak to trough’, Crockford says.

He saw it had made some mistakes over fashion trends – choosing dull colours over the more popular fluorescen­t variety favoured by rival makers such as Nike. It also suffered from sales falling in key emerging markets such as Russia. This made Crockford nervous about holding on. But a day with the Adidas management at its Germany HQ, including questionin­g the head of research and developmen­t, reassured him they should stick with their investment. He says: ‘In fact, we were so impressed we doubled down after the visit. The shares looked like a bargain.’ He has been proven right as they have soared ahead in recent years, growing nearly fourfold since May 2015 to €273.50 (£244.20).

Another success has been Swiss firm Lonza Group. It is a contract manufactur­ing and developmen­t company that helps biotech companies to develop their more sophistica­ted, complex medicines at a lower cost. And as an outsourcer used by a large number of players in the industry it is well diversifie­d and protected against the inevitable failure of certain drugs getting to market.

A sector that has excited Crockford for some time is technology, with Netherland­s-based microchip maker ASM Internatio­nal featuring large in the portfolio. It provides the technology that enables the shrinking of electrical circuits – which helps the Intels and Samsungs of the world develop their faster and more efficient equipment. ‘We’ve held the shares since 2014 and they’ve done well, in a zig zaggy way.’

Darius McDermott, managing director of fund analysis firm Fund Calibre, is impressed by Crockford, whose fund has outperform­ed peers over three and five years. McDermott says: ‘He tends to invest in quality companies – an investment style that has been in favour recently – but neverthele­ss he has added value consistent­ly every year.’ Ongoing charges are a respectabl­e 0.89 per cent.

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